The Finance Professionals' Post educates readers in the finance and banking sectors on the forces that shape their business. The FPP is a publication of the New York Society of Security Analysts (NYSSA).

Recent Research: Highlights from November 2012

Over the last
two centuries, technological advantages have allowed some traders to be faster than
others. In this article, the authors argue that contrary to popular perception, speed is
not the defining characteristic that sets high-frequency trading (HFT) apart. HFT is the
natural evolution of a new trading paradigm that is characterized by strategic decisions
made in a volume-clock metric. Even if the speed advantage disappears, HFT will evolve to
continue exploiting structural weaknesses of low-frequency trading (LFT). LFT
practitioners are not defenseless against HFT players, however, and this article offers
options that can help them survive and adapt to this new environment.

Traditionally, securitization has been viewed as a product although it could more
properly be described as a financing technique. This article looks at the history and
background of securitization since its inception in the early 1980s and discusses why
labels can be misleading and, in some instances, dangerous. It addresses the development
from “true sale” to “whole business securitization,” including differences between the US
Bankruptcy Code and the UK Insolvency Act. It concludes with a brief examination and
commentary on the EU Capital Requirements Directive and some of the dangers that arise
when regulators stretch a concept too far.

The authors use US panel data covering the 1999-2009 period to
investigate the link between portfolio risk and household characteristics. They find wide
heterogeneity of risk, with about 40% of the households not willing to undertake any risk.
They also find some regularities: Whatever indicator they take, risk shows a flat age
profile and correlates with wealth and income. Alternative risk indicators provide similar
insights, although they vary differently over time. In particular, the measure of implicit
risk tolerance grew abnormally in 2009–at the beginning of the recent financial crisis.